Tag Archive for: #Hard Money Loans

Top 5 Hard Money Loan Options

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What types of hard money loan options are out there for real estate investors?

Hard money (sometimes called private money) loans are often the key to getting started in real estate investing. 

Most hard money lenders have a lot of options and many even have particular specialties. This article explains what’s out there so you’re equipped to have discussions with lenders.

Here are the top five loans that you’ll encounter in the hard money industry.

1. Fix and Flip Loan

The nice thing about a fix and flip loan is that it has everything to do with the property. Even if you’re less experienced as an investor, if the property has potential, hard money lenders will listen.

If the value is there, hard money lenders could fund up to 100%.

2. Bridge Loans

You’ll typically use a bridge loan to either purchase or refinance a project. There are a few places where they generally show up:

Bridging Gaps Between Projects

If you’re currently working on a project but you come across another great deal, a bridge loan can tap into that equity. You can use this money this as an opportunity to efficiently line up your next project.

A bridge loan would put a small lien on a property that’s about to go up for sale (or is currently being sold) which gives you money to purchase your next project.

Finishing and Buying Properties

Hard money moves more quickly than large, standard bank loans. If the clock is ticking and you need to either pay or lose the deal, a hard money bridge loan can save the day.

Wholetailing

Bridge loans can also work as a crucial part of wholetailing. Wholetailing involves anything from purchasing a discounted property and performing basic fixes to outsourcing renovations altogether. 

Typically, wholetailing only requires simple funding, often 60-90-day loans.

3. Gap Loans

You can explore gap funding to cover all sorts of money holes that might show up as you go through a project:

  • Down payments
  • Getting a project started (consider funding for escrow draws)
  • Completing a project
  • Carrying project expenses (like HOA fees)

You can even use gap loans to pay off old investors if you have someone who’s ready to move on. Treat your investors well and make sure you have the financial flexibility to let them out if they need.

4. Usage Loan

A usage loan is a private non-reporting loan that helps you pay off your credit card balances. If you’re using your personal credit card for business, this can be an important way to raise your credit score.

Real estate investing is all about leverage, and a lot of banks see your credit score as a reflection of your ability to use leverage well. 

The higher your credit score, the better terms you’ll often find for loans. 

5. BRRRR “Buy” Loan

The two big ticket items in the BRRRR method are 1) the purchase, and 2) the refinance.

Hard money loans come into play on the purchase side of a BRRRR. Because hard money is so flexible, it can also often fund a good portion of the rehab. 

Questions?

These are the top five hard money loan options, but if you’re looking for something else, just ask! Remember, hard money lenders are often smaller companies and individuals. They all have preferences and specialties, so get to know them and let them get to know your project.

If you’re interested in learning more, check out the free tools on our website or our YouTube channel where we discuss other tips and tricks for successful investing.

You’re always welcome to reach out to us at Info@HardMoneyMike.com if you have any questions or would like to discuss a deal.

Happy investing!

Hard Money Lending: 9 Things You Should Know

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What should you know about hard money lending before looking for your first deal?

The real estate investing world revolves around using other people’s money strategically to build wealth for you and your family. If you’re new to the table, it can be tricky to get Wall Street companies to back your deals, but hard money lending is a different game. 

If you’re new to real estate investing, chances are hard money loans (also called Private Money Loans) are going to be the key to your success. 

Here are 9 ways that hard money lending is a unique and great option for new investors. 

1. Hard Money Lenders Tend To Be Relational and Local

Most hard money lenders are relational. Hard money lenders are frequently either individuals or smaller companies, so personal connection really does matter.

They like to invest in their local communities in projects that will help build the local economy. Even if you’re a new investor, by building a good relationship with small, local lenders, you can still find the finances you need.

2. Loans Are Not Score-Based

Unlike large banks, hard money lenders aren’t tied to particular credit scores. 

You should still be honest with your lender, but the score typically matters less than the type of project and the LTV (loan to value).

3. Terms Are Not Based on Experience

In hard money lending, deals aren’t usually based on experience. Instead, lenders look closely at the individual deals. 

If a particular deal has a good chance of creating wealth, you’ll likely find an investor.

4. Hard Money Lending is Flexible

If you have a unique property or project that falls outside of what larger banks will back, it’s probably a good option for hard money.

Flexibility is one of the most important distinctions with hard money lending. If the LTV is good and that lender wants to invest in that area, you’ve got a good chance of making a great deal.

5. Hard Money Can Fund More

Hard money loans can actually fund up to 100% of your project depending on the LTV. 

If you’re strategic about the projects you take on, you can increase your leverage by choosing good properties and going through a hard money lender. 

6. It’s Fast!

Hard money lending is fast. 

Typically, you can close deals in days instead of weeks. Because the real estate market moves fast, this can be a great option to make sure you’re not missing out because of slow lenders.

7. You Can Do a Lot with Hard Money

You can use hard money for all sorts of things. From gap funding to purchasing costs to usage loans that raise your credit score, hard money isn’t limited to only one aspect of investing. 

It’s good to find multiple hard money lenders in your area because a lot of them have expertise in particular areas.

8. Use it to Pre-Fund Escrow

One of the great things about hard money is that you can use it to help get projects moving. Because escrow typically works as a reimbursement system, you usually need to personally fund your first (and sometimes second) escrow draw. 

Especially as a new investor, the first few escrow draws can be a huge strain financially. 

With the flexibility of hard money lending, you can use that loan to cover those draws. Then, once you’re able to access those escrow funds, you can pay off the hard money loan. 

9. Hard Money Lending Comes in all Sizes

As mentioned earlier, hard money lenders are sometimes willing to fund up to 100% of the purchase cost. 

They’ll frequently fund $50,000 or $110,000 loans whereas a lot of the big equity firms don’t really like this size loan. 

Time to Invest!

If you’re new to investing, remember that leverage is king. Leverage—the way you use other people’s money—is how you generate wealth and income.

Reach out and find the local hard money lenders in your community. 

We have a few tools on our website that can help you find resources in your area. Check out our location pages to find hard money resources in your area. You can also download our free Loan Cost Optimizer to help you compare different loan options.

As always, feel free to check out our YouTube channel or reach out to us at Info@HardMoneyMike.com for more information.

Happy investing!

How to Get Approved by Hard Money Lenders

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Knowing what hard money lenders look for is key to winning the real estate investment game.

Real estate investing is all about creating wealth and income by leveraging other people’s money. 

Hard money loans (also sometimes called private money loans) are a crucial part of that money.

What is a Hard Money Loan? 

A hard money loan is a loan based mainly on the property or the investment that you’re working on. It’s less focused on the investors themselves, as hard money lenders tend to look more at the property and LTVs (loan to value). 

Hard money lenders look for great deals. If a project is a good deal for you, you’ll likely find lenders willing to back you up.

Another benefit of a hard money loan is its flexibility. Hard money lenders allow higher loan to values and, depending on the property, sometimes will lend up to 100% of the total cost.

This is super important for new investors who need money to get started.

When to use a Hard Money Loan?

There are all sorts of loan options out there, but hard money is particularly useful in a few scenarios:

  • Closing quickly: Hard money loans are a lot faster to come by than traditional bank loans.
  • Unique Projects: Private lenders aren’t bound by the same restrictions as large firms.
  • Higher Loan to Value: If your deal needs a higher LTV, hard money can be the best deal.
  • Credit Score Trouble: Hard money lenders are more concerned with the value of the property than your personal credit score. You can also use a hard money loan as a usage loan to raise your credit score. 

How to Find the Perfect Hard Money Lender

Since hard money lenders are often smaller, private individuals or companies, it can take some work to find the right fit for you. 

If you’re starting with a Google search, know that local lenders likely won’t appear on the first page with the paid promotions from large banks. Click through a few pages of results to find what you’re actually looking for.

1. Look For Local Hard Money Lenders

Hard money lenders gravitate towards local markets in smaller communities. You can check out our location pages to learn more about resources we’re connected to in your local area. 

Finding local real estate investment groups can be a good way to start making connections.

Also, engaging with online forums like ones on BiggerPockets can help you find other investors and lenders in your area.

Local connection goes a long way in the hard money game, and you’ll need to take time to network in your area.

2. Create Relationships

Private money lenders are often very relational. 

Because of this, you’ll need to take time to call and talk to them. Make sure they know that you know what you’re doing.

Learn the language to help build their confidence in you and your project. 

Additionally, some lenders may even ask to see the property you’re asking them to invest in. Making sure you give them all the information they ask for is critical in your relationship with them. 

Similarly, just like they’re trying to determine whether you’re the right fit for them, you should also look at multiple lenders. The relationship between lenders and investors is a two-way street, and it’s important both of you feel confident about the deal.

3. Make Them Feel Comfortable

Remember that hard money lenders are typically individuals or small companies. Each loan is important to them.

Let them see your numbers. Let them see an example deal. Even if you’re just starting out, show them an example of potential loan to values, and be prepared to show your work.

The more you know about your contractors, purchase price, rehab costs, etc., the more you’ll ease their concerns.

Although it takes time to prepare this information, it can make a huge difference. This is your business, and doing that preparation shows your lenders that you’re competent at your part of the job. 

4. Make it Easy for Your Lenders

Finally, don’t make your lender chase you down to follow up. Have everything ready before they ask and pass it along early in the process.

Prepare a package ahead of time that has all the necessary information enclosed to the best of your ability:

  • Comps
  • ARV info
  • Scope and timeline of work
  • Team members
  • Contractors
  • Realtors
  • Insurance agent
  • Title info

The easier you make it for your lender, the more likely they’ll offer you a great deal.  

Show them that you know exactly what and how to break down a property and that the equity is there. This lets them know their loan is protected by a solid property with a good plan for generating income.

Questions?

Hard money lending is all about relationships. If you build a good relationship, you’re far more likely to find the lenders you need.

We have a few tools that can help you shop around for the perfect hard money loan. The first is our location pages. You can use these to find resources in your area.

The other tool we recommend is our free Loan Cost Optimizer download. It’s easy to use, and it can help you compare different lenders to find the best deals.

If you’re interested in a hard money loan or have questions about how to find lenders in your area, feel free to reach out to us at Info@HardMoneyMike.com.

Private Money Loans: 5 Tips to Find the Safest Loan

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What should you look for when considering private money loans?

Real estate investing is one of the most lucrative markets out there. It’s still creating millionaires and opening the door for families to build generational wealth. But how can you get your foot in the door?

Especially if you’re a newer investor, we’re here to help you figure out how to do this by finding the right lender for you.

Why Private Money Loans? 

Private money loans—also often called hard money loans—are particularly helpful in real estate investing. These particular loans are more flexible which make them perfect for unique projects or projects in rural areas that larger banks may see as less valuable.

If you’re in real estate, you understand that leverage is king. Hard money is an important part of that leverage. However, even as you’re looking for private loans, make sure you shop around so that you can negotiate the best deal possible.

But how can you go about finding a good private money loan? 

1. Shop Around for Loans

No matter where you are in your real estate career, you should always shop around. Even if you’ve had a good experience with a lender in the past, still look around to see if you can find better deals. 

Talk to different lenders. Especially with hard money, each lender will typically have a specialty. This means that each project you do might fit best with a different lender.

This can feel overwhelming, so we’ve created a free tool called the loan cost optimizer. It’s easy to use and can help you find a better deal for your project.

2. Ask For Referrals

If you ask Google to find a good lender, two things are going to happen: First, you’re overwhelmed by the sheer number of options. Second, the ones you’re most likely to see will be paid promotions or paid advertisements.

One of the best ways to avoid this is by asking for referrals. If you know other people in your area who are in the real estate game, ask about their experiences with their lenders. 

Did they charge what they said they were going to charge? How accurate was the lender’s original quote? Did they close on time? Was the contract solid?

Finding a good lender is about more than the on-paper costs. You want a lender who’s reliable and trustworthy, just like they want reliable clients. 

3. Check the Reviews

If you can’t get a referral from someone, the next best thing (and something you should do regardless) is to check the reviews.

Platforms like Google have made it super easy for people to leave reviews for companies. Check out what people are saying. 

Although reviews aren’t always entirely accurate, if a private money lender has a lot of negative reviews about trying to change the terms of a loan, that could be an issue. 

4. Get The Private Money Loan Details in Writing

You don’t ever want to be stuck in a situation where you thought you had a specific agreement, but it doesn’t come through because it was just a verbal comment.

Make sure you get a clear terms sheet that outlines everything the lender said. If you have other important conversations, ask to get an outline of that conversation in writing. Even an email works!

5. Review All Paperwork Carefully

If possible, find a lender who will provide the settlement statement a day or two before closing so you don’t have any surprises. This gives you time to review the paperwork carefully before finalizing the deal. 

Always make sure you know the default rates and other potential charges that might show up. Even if you don’t expect delays in your projects (no one does), read all that fine print carefully so you know the facts.

If You Want Additional Help… Ask Us!

Here at Hard Money Mike we specialize in private money loans. These loans are flexible and perfect for investors working in smaller communities, but it can take some time to find the right loan for you.

If you want a quote, have questions, or want to learn more about private money loans, reach out to us at Info@HardMoneyMike.com. 

What Can You Do With A Hard Money Loan?

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Hard money is so versatile! Understanding how much you can do with a hard money loan can open doors for your projects.

As long as the deal you’re looking for is backed by real estate for investment or business purposes, hard money is one of the most flexible options out there.

Unlike a lot of other options, hard money lenders aren’t confined by the same restrictions as traditional loans. This means you can use hard money for a wider variety of real estate investment projects.

Fix and Flip Hard Money Loans

Hard money loans work exceptionally well for fix and flip projects. Here at Hard Money Mike, we specialize in hard money loans for fix and flips. 

Hard money loans can often be specialized for your individual project which makes them ideal for real estate investing and renovations. 

Similarly, if you’re looking to renovate and rent (instead of sell), you can look for a hard money loan to help cover the cost of rennovations.

Gap Funding with Hard Money

Gap funding is a term used for a variety of loans that cover the “gaps” in a larger loan. This is often simple to find through hard money loans, provided there’s good equity in the deal.

One type of gap funding is bridge loans. If you need temporary financing or are looking to buy one property before selling the other, look for bridge loans from hard money lenders.

Similarly, gap funding also covers usage loans. With usage loans, lenders pay off the investor’s credit cards which helps their credit score go up. This lets real estate investors get the funding they need to focus on their project.

We also strongly encourage our investors to have a separate business credit card to keep their scores high.

Project Completion Loans

If a property is sitting stale or taking too long to get money out of escrow, hard money loans can play a huge role in project completion. 

The faster you complete your project, the lower your overall project cost. Also, the better chance you have of hitting a good selling window in the market.

Land Purchase and Development

The flexibility of hard money can work well for investors and business owners who want to buy property to develop. While big companies are often less interested in rural areas, hard money lending doesn’t have those same hang-ups.

Additionally, because hard money lenders can adjust for the client’s needs, it’s easier for you to buy large plots of land to later split into multiple parcels. It’s also easier to use that money for things like modular home development.

A good hard money lender will be able to help you get money in order to purchase and begin development quickly.

Hard Money Loans for Business Needs

You can use a hard money to buy out a partner who owns real estate or to expand their business by buying equipment or other needs. 

If you’re a business owner, you also might be able to use a hard money loan to cover payroll expenses thanks to its flexibility. So long as some level of real estate is involved, hard money lenders are able to support.

First Time Investors or Poor Credit Scores

If you’re a first time investor looking for a good deal, hard money is likely the way to go. 

Depending on how good the deal is, hard money lenders will sometimes give up to 90% to 100% even if your credit score is less than 600.

Hard money lenders are able to be more understanding regarding credit scores and are often more willing to lend to people with lower scores. This in turn really helps out newer investors who are trying to build capital.

Unlike large Wall Street-type companies, hard money lenders care more about the loan to value and the property’s value.

Hard Money for Unique Projects and Situations

Hard money is ideal for unique situations and real deals that can make investors money. 

If you find yourself stalled in the middle of a project and pressed for money, hard money lenders are flexible. Even in the middle of a mess, a good lender will try to help you find a solution.

Refinancing during a project can be tricky, but it’s significantly easier with hard money.

Similarly, strange situations happen all the time that can leave investors high and dry. If a bank is bought out and your loan is due when you’re not ready, hard money loans can bail you out.

Hard money also works well for mixed use commercial projects. 

Wholetail and Transactional Deals with Hard Money

If you’re looking for a short term wholetail deal, hard money works well. Hard money can even work for loans as short as 30 or 60 days. 

Transactional deals refer to when you’ve found an amazing deal and you plan on buying and selling within a week.

Hard money is perfect for those kinds of deals because they often have a higher loan to value than private lenders like.

The Benefits of Being Outside the Box

Hard money lenders don’t have a box we need to fit into which lets us help you out in a wide range of situations. 

Especially in 2023, banks are walking away from certain deals which makes hard money even more important.

If you’re interested in looking at more traditional loans, check out The Cash Flow Company. However, if your project is outside of the box, hard money might be the way to go.

If you have questions or want to talk about your project, contact us at Info@HardMoneyMike.com.

You can also check us out on our YouTube channel.

Happy Investing.

Hard Money Loans for New Investors

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Hard money loans open doors for newer, smaller investors who are looking for a way to enter the real estate game.

Our goal is to make it as easy as possible for new investors to find the right information so they can be successful.

What are hard money loans? 

Hard money loans are short-term asset-based loans secured by real estate. These loans are typically provided by private investors, small companies or individuals in your local area. 

The main advantage of hard money is they provide quick real estate financing based mostly on the asset and not on your credit score. 

Hard money loans can be used for many things:

  • Funding a fix-and-flip
  • Financing the front-end of a BRRRR project
  • Overcoming credit limitations often experienced by new investors
  • Purchasing land for development
  • Funding some construction projects

Pros of Hard Money Loans:

1. Speed

Whereas Wall Street companies or banks may take two to four weeks, getting approved for a hard money loan typically takes five to seven days.

Speed is critical in investing, and quickly getting your money upfront is crucial in the real estate game.

2. Upfront Financing

Hard money loans also give you money upfront. This allows you to get your escrows out to start the project. Most large companies want you to put money in first. This can be a particular problem for new investors, and hard money lets them get their foot in the door. 

3. Flexibility

Large companies often have very strict lending criteria. If your project is unique, if it’s outside of the box, hard money lenders are more likely to consider it.

4. Higher Financed Amounts 

If you find a deal that has a good loan-to-value ratio, hard money lenders may lend up to 100% of the financing. This lets you keep more of your own money in your pocket and use the lender’s funds for your project.

5. Property-Focused Approvals

Finally, approvals for hard money loans are mainly based on the property itself, the exit strategy and the planned renovations or improvements. Hard money is often a good fit if you’re an investor with limited credit history or a unique property or area.

Cons of Hard Money Loans

1. Higher Costs

While interest rates on hard money are typically similar to other lenders, costs can be anywhere from 1% to 1.5% higher. However, faster closing times often offset the higher cost and can get you better deals than Wall Street companies.

2. Shorter Terms

Typically, hard money lenders offer financing ranging from six to twelve months. Therefore, if you’re looking for something longer than twelve months, Wall Street companies or a local bank may be a better fit. 

3. Limited Availability of Hard Money

Additionally, it’s important to remember that most hard money lenders are individuals, small companies, or private institutions. These lenders only have a finite amount of money to lend. It’s often necessary to build good relationships with local hard money lenders to ensure access to funds.

Hard Money Resources for New Investors

It can be tricky to determine what option is best for you. Because of this, we’ve compiled some resources to help you shop around for the right fit for your project.

Sites like Connected Investors help you network with other people in the business. Get plugged in with your local realtors, wholesalers, and lenders. Talk to other people in the industry to make sure you’re getting the best deals. 

To help you shop around, we also have a great tool called the Loan Cost Optimizer that helps you find the good lenders. It’s free to download and to use!

If you’re still not sure if hard money loans are right for you, no problem! Check out the Cash Flow Company website or YouTube channel to learn about other, more Wall Street-style options that have the same personal connections as hard money loans. 

Additional Questions and Research

Hard money is a very important tool, especially for new, small investors. However, you should always shop around, look around and talk to other experts so you know your options. Also, experts can help you better understand the terms and conditions of hard money loans so you know exactly what you’re getting into.

If you have questions about hard money loans, contact us and we’ll be happy to help you out!

Additionally, you can check out this video on our YouTube channel.

3 Reasons Why You Need Hard Money for Your Investments

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Not sure about hard money loans? Here’s why you need hard money as a real estate investor.

MYTH: hard money always costs more than bank financing.

Over the last year with the fed raising rates, banks’ interest rates have come within 1% of where hard money is. Also, there are advantages hard money has that other financing doesn’t that can end up saving you money overall…

Here are the top 3 reasons why you probably need true hard money for your real estate investments.

1. Flexibility

Every other type of loan – from banks, credit unions, or big private money institutions – only comes within a very strict box. But not hard money.

Hard money is based on one main criterion: the real estate itself. As long as there’s a good property to back you up, hard money lenders will work with you under many circumstances.

Why You Need Hard Money: Splitting Land Example

For example, we helped our client Sam with a deal. He bought a small commercial property with some land next to it. He plans to split the land, divide it into lots, and sell the lots.

When he does sell the individual lots, he’ll begin paying off the hard money loan. We’re working with him to recast the loan as he pays the lots off.

Hard money has this flexibility, while Sam may not be able to get this project done with traditional lenders.

Why You Need Hard Money: Buying Assets for Your Business Example

As another unexpected example, we helped another client who was buying a dump truck for their concrete business. They needed $200,000 to buy the trucks at auction, then they’d be ready to pay it back in a couple of months with the new revenue the truck would generate.

However, they didn’t have $200k in cash available. What they did have was a piece of real estate, so we were able to put a lien on it and help them with the loan.

It doesn’t matter if it’s a first lien, or second, or even third. As long as the deal makes sense, a true hard money lender will look at it.

Why You Need Hard Money: LTVs

The best case scenario with the loan-to-value from other lenders will be 90% of the purchase price and 100% of the rehab.

True hard money, on the other hand, will always use the ARV on a fix-and-flip style property. Most hard money lenders will do 75% of the after-repair value, plus rehab costs.

We have flexibility because we look at the property and the exit strategy, and we take deals based on the likelihood of you and us both being successful.

True hard money is what you need when you need flexibility.

2. YOUR Requirements

Other lenders have a long list of requirements for you. Such as:

  • Good credit score
  • Past experience in real estate
  • A certain amount of reserve money

The beauty of true hard money is it’s based mostly on the property.

Hard Money & Credit

We don’t care whether you have a 600 or 620 score. Your credit score will not determine your loan-to-value, rate, or fees. All those factors are more based on the property.

Yes, we will look at your credit. We want to make sure you’ll pay us back, but we also know that, in this industry, a lot of credit scores are downgraded just because of usage.

Many real estate investors use their credit cards for projects, driving down their credit scores. We understand that’s how you have to run your business. We don’t believe it’s fair to judge whether we should lend to you based on high credit usage. 

Hard Money & Experience

Most lenders require you to have three to five complete transactions over two years in order to give you the highest loan-to-value.

With us, it really depends on the deal. We’ve now done three loans for an investor who came to us with zero investment properties under her belt.

The deal was so good: she could buy the property, rehab it, and still be under 70% ARV. We knew she’d have plenty to pay off the loan whether she sold it as a flip or refinanced it into a $200+ cash-flowing rental.

If you don’t have experience but do have a great deal, then hard money is your option.

Hard Money & Reserves

Big investment firms that do private lending and banks always require more money upfront, in both down payments and reserves.

We recently helped a client in Texas where the only thing stopping the private money lender from lending to them was the reserves. They were just two months shy of meeting the requirements. 

But we don’t really look at reserves. Once again, we’re looking at the property. Do you have the funds to finish the property? Is the property such a good deal your reserves don’t matter? That’s what we’re going to look at. 

3. Speed

The third reason you need hard money is speed. 

With hard money, you can close…

  • Without an appraisal
  • In days instead of weeks
  • On unique properties that would otherwise need extensive underwriting

Why You Need Hard Money to Close Fast

We had a client looking at a $330,000 property. He bid just $300k, and there were 6 other bidders. But, he offered to close within 10 days. The seller took his offer because of that.

In his case (and for many of our clients), the savings they get from closing fast more than cover any additional cost they spend in interest or fees for the hard money loan. Essentially, this client got his property with free money.

Why You Need Hard Money: Finding the Best Hard Money Loan

Flexibility, more relaxed requirements, and speed. This is why you need hard money for your real estate investing career.

But as with all lenders, it’s important to shop around for the cheapest deal on rates and fees. To help with this, download our free loan cost optimizer here. It’ll help you find out which loan is truly the cheapest for you.

Have more questions about hard money? You can reach us at Info@HardMoneyMike.com, or check out the resources on our YouTube channel.

Happy Investing.

7 Ways to Get the Best Rate on a Hard Money Loan In This Market

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Interest rates can make or break your REI project. Here’s how to get the best rate on a hard money loan.

Investing is a leverage game.

You need other people’s money to make money – but that doesn’t mean you have to overpay for that money. 

Let’s take a look at how to get the best rate on hard money loans in the current environment.

What Is Hard Money?

Hard money is sometimes called asset-based lending, or private money.

Hard money is a form of leverage focused on the property. All lenders have criteria they require from borrowers. For hard money lenders, the main lending requirement is about the property and project itself.

Lender Niches Will Affect Your Rates

Investors have their own niches, their own likes and wants for their investment experience. Maybe someone doesn’t want rural properties, someone else focuses only on high-end houses, another on low price points.

Lenders have individual likes and dislikes the same way. Every lender draws a box of what they like to lend for. The more your property fits in their box, the better rate they’ll give you.

This means that not all lenders will want your particular project – or that they won’t give you the best rate on your hard money loan. It’s not personal. Not every project will fit in every lender’s “box.”

If you want the best rate, then you’ll have to find the lender that likes your project, your experience, and your property.

Types of Private Money

There are three types of lenders that make up the private lending world: local, national, and OPM.

  • Local Lenders: Lend regionally, in your state or city only.
  • National Lenders: Backed by Wall Street hedge funds. They lend all throughout the US.
  • Real OPM: Other People’s Money. A private loan from someone you know..

The best rate on a hard money loan will vary lender to lender, depending on the type of institution and their preferences. One lender might do land loans, but another won’t. One may offer great rates on new builds but not even offer scrapes.

Whatever your project, it’s important to find a lender that matches you. The closer you match a lender’s preferences, the better your rate.

Despite all these differences between lenders, there are some general rules between the three types of hard money.

Real OPM

The best possible rates come from OPM. A friend, family member, or other investor who wants a safe place to put their money will cost you a lot less than a formal lending institution.

You save on cost with an OPM loan because there are no points, fees, or appraisals. Every institution will charge you these extra on your loan.

OPM also saves you the most on interest rate. The interest rate criteria for most OPM lenders is, “more than they could get in an IRA.” Typically with OPM, interest rates are 3-4% less than other lenders.

National and Local Hard Money Lenders

Both local and national lenders will have similar pricing, for the most part.

Rates for these lenders depend on what they’re looking for in their portfolio. Now, in late 2022 to 2023, most lenders’ rates will be between 9-12%.

One difference, however, is that local lenders tend to not have extra underwriting and appraisal fees.

Shopping Around to Get the Best Rate on a Hard Money Loan

The best rates aren’t going to come to you. You’ll have to shop around to find the best lender for each of your projects.

Talk with lenders in your area and get estimates for loan costs. Then, you can use our free Loan Optimizer tool to quickly compare lenders and find out who’s cheapest.

Lowering Risk to Get the Best Rate on a Hard Money Loan

To get the best rate on a hard money loan, think of it from the lender’s perspective. They want to lend to people who are low risk. Therefore, the less risk you pose, the better your rates become.

So how do you lower the risk? Here are 7 ways you can lower your risk to get a better rate from a lender.

1. Straight Talk

Firstly, be able to back up everything you tell your lender. No lender wants to be in a position where they have to try and figure out what’s true and what’s not.

If you do this, lenders will put you at the end of their long line of waiting borrowers – or they’ll increase your cost.

Give them all the information they need. Be honest about everything – even the ugly parts of your credit or investment history. If you think your rate will be worse if they knew the full store, just remember… It’ll be even worse if they find out you hid it.

2. LTV

The lower the loan amount on a property, the less risk for the lender. The less risk for the lender, the more likely they’re going to give you a better rate.

Putting more money down results in a lower rate overall.

3. Experience

If you can show a lender that you’ve had success flipping houses, building homes, or developing land, you pose less risk. Investors with projects under their belt usually see lower interest rates.

4. Credit

National lenders (hedge funds) use credit as one of their main criteria for rates. The better your credit, the better the interest rate they can offer you.

The difference between a 640 score and a 740 could be a difference of 1-1.5% on your interest rate.

Local lenders and OPM lenders don’t consider your credit score as a major requirement. They will look at your credit, but only to make sure you’re not defaulting or have a foreclosure or bankruptcy.

5. Property & Project Types

As mentioned before, each lender has a real estate niche. If your project fits in their box, you can catch a bit of a break on the interest rate. If it does not fit in their box, they may still lend to you, but they can charge you a little more, making your project less profitable.

6. Loan Size

Some lenders won’t lend under a certain amount.

Hedge funds often dislike smaller loans. Some won’t lend under $100,000 – some have a threshold at $500,000.

Smaller loans, like $25k or $50k, are more suitable for OPM. OPM lenders often have smaller available reserves to lend.

7. Location

Local lenders tend to have a specific region of service. National lenders tend to only loan in metropolitan areas. And OPM lenders tend to be more flexible.

But again, each individual lender will have their own preferences. To get the best rate on a hard money loan, find out the lender whose box you best fit in.

The Truth About How to Get the Best Rate on a Hard Money Loan

If you want the best interest rate on a private loan, you really need to shop around.

There’s money in the money, and the less you have to pay for leverage, the more successful your real estate investing career becomes. Hard money is a powerful investing tool, but the wrong interest rate can destroy your project.

You can download our Loan Optimizer here. Send us an email at Info@HardMoneyMike.com if you have any other questions about how to find the right hard money loan. And check out our YouTube channel for more free real estate investing information.

Happy Investing.

Text: "ARV & Comps: How to profit on your real estate investments"

What Does ARV Mean in Real Estate Investing?

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To profit in real estate investing, you’ll need to know: What does ARV mean?

Real Estate Investing: What Does ARV Mean?

ARV is the after repair value. It’s what the property will appraise for, or sell for, on the current market once the scope of work is completed.

You estimate a property’s ARV by looking at the prices of similar homes in the current market.

What Are Comps?

Comps (comparables) are those similar homes you look at. It’s important that your comps have the same value as your property.

For example, if your deal is for a 950 square-foot home, you’ll compare it to other 900 to 1,000 square-foot homes on the market, not a 2,000 square-foot one. Similarly, compare a 2-bedroom, 1-bath house to houses of the same specifications – not to 4-bedroom, 2-bath homes.

How To Get an Accurate ARV

For your ARV to be accurate, you need to stay true to your scope of work. If you only repaint and re-carpet a house that needed much more work, you won’t get top-of-the-market value when you try to sell or refinance.

On the other hand, if your scope of work is a full remodel, your comparables should be homes that are fully remodeled, so you don’t miss out on any profit.

The money you put into fixing up a house isn’t a direct indicator of how much the house will be worth. What the property looks like when it’s finished has nothing to do with how much it cost to get it there.

What Does ARV Mean for Profit in Real Estate Investing?

Estimated profit is what you expect to make on the transaction between:

  • buying the property
  • fixing it up
  • selling it again.

Additionally, equity is the difference between the amount you owe and what the property is worth. You build equity on your rentals by:

  • buying properties with a low purchase price and a high ARV
  • successfully refinancing after a flip
  • paying down the mortgage with rent income.

If you want to find the true profitability of a deal, then use your ARV and comparables:

ARV – (Purchase Price + Budget) = Profit Amount

Read the full article here.

Watch the video here:

https://youtu.be/4RErCDhSi44

Text: "Hard Money Numbers Know the Basics"

Hard Money Loans – Know the Basics

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As a beginner investor, you need to know the basics about hard money loans.

The two most basic hard money answers you need are:

  1. What’s the difference between loan-to-value and ARV?
  2. How do you calculate them?

Know the Basics: Loan-to-Value

Firstly, what’s Loan-to-Value? Loan-to-value, or LTV, involves the:

  • appraised value of a property
  • as it sits right now
  • with nothing changed about it.

As a real estate investor, if a property costs $100,000 as it sits, you know you’re going to put work into it and make it worth more. But that as-is value, the $100,000, is what lenders base their loan amount on.

Know the Basics: After Repair Value

Secondly is After Repair Value. After repair value (ARV) is used more by hard money lenders and the real estate investment world. Banks and traditional lenders more often use LTV.

Because in real estate investing, we’re basing our numbers on what you can do to the property. What can the value be once you fix it up? That’s the number that determines profit, so that number is more important for hard money lenders.

ARV is the target value of what the house will be worth after all your renovations. This ARV should always be higher than the current price of the house when you buy it.

Calculating ARV and LTV for Hard Money Loans

Let’s say you found an undermarket property that’s selling for $100,000. If a lender says, “We’ll loan you 75%,” that could mean two things, and you’ll want to know the difference.

First, if they’re a bank, they’re likely talking about 75% of the value. In this example, that would be:

$100,000  ×  75%  =  $75,000 loan

Hard money lenders will care more about the value of the home after repairs, so they go off ARV. If they loan you 75%, that would be:

$150,000  ×  75%  =  $112,500 loan

If a loan is based on ARV, lenders might want to know – what are you doing to the property? Different renovations will affect the value of the property in different ways. What you will do and the quality of your work will affect the ARV.

When you know the basics about LTV and ARV, your hard money loans will be much smoother.

Read the full article here.

Watch the video here: